CORPORACIÓN INTERAMERICANA DE ENTRETENAMIENTO
Moderator: Alejandro Soberon
July 27, 2001
10:00 a.m. CT
Operator: Good morning to everyone and welcome to Corporación Interamericana de Entretenamiento, CIE, Second Quarter 2001 Earnings and Operating Results Teleconference.
With us today are Mr. Alejandro Soberon, Chairman and CEO; Mr. Rodrigo Gonzalez, Vice Chairman and COO; Mr. Victor Murillo, CFO; and Mr. Jaime Zevada, Head of Investor Relations.
They will discuss CIE’s financial and operating results as per the press release that was distributed yesterday. After the review they will take any questions you may have.
I will now leave you with Mr. Alejandro Soberon. Please go ahead, sir.
Alejandro Soberon: Good morning to all of you. On behalf of CIE’s management I would like to thank you for your interest and support. By now you should have received our financial and operating information for the quarter and the six-month period ended June 30, 2001.
I would like to walk you through a clear review of what we achieved during this period, the recent strategic and financial events, with an outlook on the different markets and regions where we operate and how the company has prepared to continues facing difficult business environments in some of those markets. Finally we want to emphasize current and future opportunities.
For a brief review on the financial results and achievements I will leave you with Victor Murillo, our CFO.
Victor Murillo: Good morning, everyone. Second quarter revenues increased 18% to $1.8 billion pesos, and 28% to $2.4 billion pesos for the six-month period.
The company’s growth has been truly dynamic in each of its business areas. Based on important out-of-home and live entertainment projects such as the racetrack, amusement park and film distribution, our Entertainment Division posted the highest revenues.
For the first six months organic growth was (15.5%), and international revenues amounted for 71%. However, in personally offsetting these increases in live entertainment we recorded adjustments revenues derived from our Broadway play Chicago, currently on stage in Buenos Aires, and lower revenues in the volume of live events in Argentina, mainly the result of the worsening economic conditions in that country.
To a lesser extent lower revenues came form the Teatro ((inaudible)) because the Broadway musical Phantom of the Opera is currently moving from Mexico to another country.
In spite of these factors and our good standing that our operating results show significant increases in the number of concerts in events promoted in Brazil, our revenue decrease was the effect of the local currency depreciation.
Our consolidated EBITDA for the quarter reached $278 million pesos, representing growth of 12%, which is lower than revenue increase.
This is due to the combined impact of an EBITDA margin adjustment in CIE’s Argentine operations, based on a revenue decrease from radio operations during the quarter that impacted the EBITDA margin importantly. The high operating leverage nature makes its margin more sensitive to revenue decreases.
To a lesser extent EBITDA margin during the quarter was also impacted by decreases in live entertainment activities in this country. The Latin Entertainment Division had negative cash flow of $12 million pesos.
Majority EBITDA was 81%. At the operating income level an adjustment was recorded due to an increase in depreciation and amortization, which has to date two of the most important contributors to overall fixed cost and expense. We estimate that total cost and expenses between 60 to 70% are variable.
The increase in depreciation and amortization was principally the result of a higher rate of fixed assets, which resulted from incorporation of stage and Las Americas Racetrack and higher rates of investment to be amortized and pre-operating expenses among others.
Impacting the bottom line, an extraordinary item of $23 million pesos was recorded after various personal and operating adjustments resulting from the full incorporation of Mexico City’s La Feria de Chapultepec Amusement Park to our Amusement Park Division. These adjustments were intended to create important synergies and economies of scale from the centralized control of our now eight parks in Mexico.
Our June 30 total debt amounted $2.98 billion pesos, out of which 34% will mature this and next year, around 1% in 2003 and 55% in the year 2007.
Savings on our debt service as compared with a year ago arise from the combined effect of lower interest rates in the country in addition to the completion and consolidation of our financing strategy initiated in the second quarter of 2000.
On a pro-forma basis and after a partial withdrawal of a new loan facility of $800 million pesos from Banco Nacional de Mexico in July 2001, the new maturity profile of our debt stands at 16% of total debt would mature this and next year, 19% in 2003 and 65% in the year 2007.
This loan matures in July 2005 and we will pay an annual fixed rate of ((inaudible)) 115 basis points with monthly interest payments and a bullet payment at maturity.
This new facility is intended to ((inaudible)) short-term debt for longer-term debt. And it’s helping CIE to fulfill its purpose by refinancing its debt with the best cost and terms options available in the market.
As a Latin American company we are committed to continue financing our growth with a healthy balance between debt and equity, which means that in the medium term we will maintain our focus on keeping our finances within manageable ranges.
It is worth highlighting the fact that at June 30 our 12-month EBITA-to-interest expense was 3.2 times as compared with 2.6 times a year ago.
Equity grew to $5.97 billion pesos, mainly resulting from the net accumulated income and the equity increase we did in October of last year. Debt-to-equity was 50% as compared with 65.4% at June 30 the year before.
During the six-month period we devoted $440 million pesos in Cap-Ex, including $273 million invested in the construction of the Las Americas Exhibition Center to open in February 2002; the revamping of various entertainment venues, including the Teatro Abril in São Paolo; investments in amusements parks for new attractions and ((inaudible)) works and develop at Parque El Salitre in Bogota.
In addition to this, $410 million pesos have been implied to acquisitions such as La Feria de Chapultepec Amusement Park in Mexico City; the acquisition of (Hosa) Entertainment, the top Latin event promoter in the U.S.; the acquisition of the remaining 30% in stage in São Paolo; and the acquisition of the operation of (ATLP) in Rio de Janeiro.
One of my most important mandates is to focus our efforts towards an improvement of our return on invested capital in the medium and long terms. In this regard we will look to focus on asset utilization by accelerating the start of a process ((inaudible)) the maturity of new capital intensive business, such as Las Americas Center, (Books and Jacks), the theatrical circuit and film distribution.
As we’re entering in the lower capital intensive stages of the Las Americas Center world project, we will benefit from both strategic and equity partners for the development and operation of the hotel and the family entertainment center.
On the other hand an intensive margin expansion will focus on the consolidation of new live entertainment operations, such as Brazil and the U.S., and take advantage of operating leverage in certain businesses such as the racetrack and the park.
I will now pass the call to Mr. Rodrigo Gonzalez, our COO, for a brief overview of the operations.
Rodrigo Gonzalez: Good morning. The number of attendants to CIE’s live entertainment events, trade fairs and exhibitions, Las Americas Racetrack and the Buenos Aires Zoo and amusement parks reached 7.5 million for the six-month period of 2001, an increase of nearly 36% compared to the same period for 2000.
In particular light events reached 1326, 16% higher than last year. From this it is interesting to note that 58% was attributed to theatrical events, 32% to musical concerts, 5% to family events, 4% to special events and 1% to trade fairs and exhibitions.
During this period we organized nine one-stop shopping regional tours for both Latin and Anglo artists throughout Latin America.
In our Special Events area we continued taking advantage of our experience in gathering and organizing events for different market segments. And this area represents one of the most interesting growth drivers of CIE into the future.
In Mexico among some of the events that we organized were El día del albañil for (Shermex), which was simultaneously developed in 90 Mexican cities. Other events marked the release of new products for IBM, Samsung, Hewlett Packard, among others. This specialization has allowed us to diversify towards events developed over an annual or periodic basis.
Similarly, interesting increases were achieved in our film distribution portfolio, which stands today at 65 films for nearly 18 different Latin countries, as compared with 17 films a year ago. In May 2001 the group premiered El segundo aire, CIE’s fifth film after Todo el poder, Amores perros, Por la libre and Sin dejar huella.
The portfolio includes movies form CIE and third parties. Some of the new titles distributed were The Gift, ((inaudible)), Estrategia de (lucin). It is important to note that some of the films were released to movie theaters, home video and other pay-per-view in different 18 countries.
During the six-month period of this year we organized 582 races at Las Americas Racetrack, compared to 349 during the same period of 2000. Per capita consumption of bets, food and beverage increased 30%, reaching $512 pesos, in comparison to $385 pesos for the same period of 2000.
This good performance was influenced by the higher number of races and production of the very special event races such as Handicap Presidencial, Handicap de las Americas, and Triple Corona. More details on these and other operations can be found in our operations sections of our press release.
Just for the first months of this year we were able to present an outstanding agenda of both international and national shows, in particular for Mexico. And we are so far not feeling any necessity to adjust local ticket prices.
In this regard our agenda of events for the next few months looks also quite interesting and strong. Some of the most important names for regional and international tourist shows and events include Judas Priest, Eric Clapton, Chicago, the Dave Matthews Band, NBA Games, The Kirov Ballet, Cirque Imperial de China among others.
Latin talent includes Juan Gabriel, (El Tri), Jaguares, Cristian Castro, Vive Latino, ((inaudible)), Paulina Rubio and Vicente Alejandro Fernandez. Some local names in Brazil include Daniela Merculi, Roberto Carlos, Maria del (Tanya), Gilberto (Giles), Simon, Ana Carolina and ((inaudible)) (Motu).
Today we have strong geographical and business sector diversification, from live entertainment to many other aspects of outdoor entertainment industry, including amusement parks, entertainment complexes and film distribution and production.
In addition we have gathered the majority of the key players that make up the outdoor entertainment industry in the Latin region, a talent pool that focuses in the most important growing facilities of CIE.
This flexibility is mainly characterized by the diversity of our outdoor entertainment options, which fit virtually any budget, from large international shows and musicals to less costly local events – films, amusement parks, zoos, and the complexes for any consumers like the Centro de Las Americas, a comprehensive entertainment concept that presents various attractions in Mexico City.
Operation of 24 prime venues in key markets is one of our most important strengths. Our access to these different venues allows us to program events with relatively greater ease than our competitors.
We believe that our control of some of these live entertainment venues also represents a significant advantage over promoters who do not have such a high degree of vertical integration.
As the largest vertically integrated live entertainment company in Latin America we believe we have unsurpassed ability to attract top international and domestic artists and events.
Our strength comes from our ability to book, promote and produce a broad variety of live entertainment events, sell tickets for both our own and third-party events through our Ticketmaster joint venture, sell sponsorship rights for our events and stage events in venues where we control the sale of food, beverage and advertise.
This vertical integration allows us to capture a greater percentage of the total revenues generated by an event and to have a lower breakeven point than our competitors.
We generally act only as sole promoters. In addition our ability to provide a full array of services such as ticket selling, venue operation allows us to profit for events for which we do not have the promotion mandate.
I will now leave you with Alejandro Soberon to review current business outlook and the perspectives going forward.
Alejandro Soberon: The first semester represents a particularly interesting period for our company. We’ve managed to expand our business base and enter new and highly interesting markets such as the U.S. Latin market.
Current results in our most important markets reflect the sound growth strategy implemented through the year, in Brazil particularly. And despite ect the effect of a currency adjustment derived from the local currency, the cruzeir, the operating results show significant increases in the number of concerts and events promoted.
The fundamentals in this particular live entertainment market remain in line, however, and faced with what we have been communicating to you in the last few months, in Argentina we have suffered adjustments in both revenue and profit margins that will continue in the short time.
Last 12 month revenues from this country accounted for 11%. We’re doing what we have to do in order to downsize and adapt our operations to the new economic environment.
In addition we have taken certain measures to reduce pressure in (Argentina’s) balance sheet, like paying all its debt of $4.7 million. In these days and in the immediate future we will keep paying special attention to the development of this country, in order to continue adjusting the operation to meet any particular requirements according to the new business environment.
For radio operations, which contribute for 32% of our Argentine revenues, we made a 15% revenue adjustment for the year. Expense decreases will arise from the merging process of the new radio stations with the old rock and pop operations, a centralized location, a single administrative team and downsizing of salespersons.
Our live entertainment and theater area, which generated 68% of local revenues, has also suffered a $2 million adjustment in revenue expectations for the year. We will continue to focus on variable costs, only staging low cost plays such as Chicago, and on ticket pricing plans to incentivize demand.
Finally, we’ll keep on taking advantage of these two operations and ((inaudible)) entertainment option for the theater.
In the case of radio, which accounts for 9% of our last 12-month top line, we have a different view of things. (The site) and well diversified live entertainment market in various cities, where the majority of events are with local talent, allow us to capitalize on important opportunities to increase market share, which currently stands at around 20 to 30%.
((inaudible)) demand for the year is in line with current expectations. And we have seen any necessity to adjust ticket price.
Looking forward, we expect to improve the cost structure through the integration of the stage in São Paolo and ((inaudible)) Hall and ((inaudible)) Hall in Rio de Janeiro with Grupo ((inaudible)), with one single management and operations pool.
In the case of the United States Latin market, which accounts for 2% of our last 12-month revenues, we see focus in bringing in expensive Mexican talent to highly concentrated Mexican and other Latin populations, where average ticket prices reached from $40 to $60.
In addition we expect several operating synergies between CIE (Howser) LA and Ocesa Presents in New York. The volume of estimated events for the year is in line with previous estimations.
Spain and Columbia are behaving in line with expectations. And in the case of Mexico, our most important revenue generator with 73% contribution for the last 12 months, we want to mention that so far the volume of estimated events for the year and ticketing price are in line with past expectations.
Financial resources from the sponsors ((inaudible)) program for the important agenda of events for the coming months, as Rodrigo mentioned, and that we will continue to take advantage of inexpensive entertainment such as parks, local events, films, and the racetrack.
In each particular case operating synergies and economies of scale should derive from centralized control of eight amusement parks in the country. Extraordinary loss that we recorded is in line with this strategy.